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Will States Collect Billions in Internet Sales Tax Thanks to SCOTUS?

By Casey C. Sullivan, Esq. on December 15, 2016 | Last updated on March 21, 2019

If you rush, you can probably still order a present for that aunt or cousin you forgot about and have it arrive on time for the holidays. (You have 'til Friday.) That last-minute order will be online, of course. You wouldn't be alone. This holiday season, online retailers are expecting to see double-digit growth in internet sales.

Many of those sales won't be taxed by the states. Some states are trying to change that, adopting laws meant to recover sales tax that would otherwise be paid by shoppers at brick-and-mortar stores. Those laws could become more common now, after the Supreme Court refused to hear a challenge to an internet sales tax law in Colorado.

Online Shopping, State Sales Tax, and Colorado

When it comes to state sales taxes and online shopping, the general rule is that if retailers have a physical presence in a state, say an actual storefront business or a warehouse, they must collect sales tax on goods sold in that state, just like any other business would. If they don't, however, they may lack the necessary physical nexus with the state that would require them to collect sales taxes. Consumers are still required to calculate and pay taxes on their purchases on their own, but few do.

The rule stems from Quill Corp v. North Dakota, a case decided by the Supreme Court in 1992, when the internet was still in its infancy.

Some states have tried to get around Quill and to collect taxes on internet sales for companies without physical presences, through so-called "Amazon laws." Colorado adopted one such law in 2010. Under Colorado's law, online retailers who weren't required to collect sales taxes themselves would have to tell customers and the state, both, how much the consumer owed in taxes. Louisiana, Oklahoma, and Vermont have adopted similar laws.

Opening the Floodgates for Online Taxes?

Colorado's law was halted in 2012, after the Data and Marketing Association sued. The Tenth Circuit eventually upheld the law last February, ruling that Colorado's law did not violate the Dormant Commerce Clause. Quill, the Tenth said, was a narrow decision that applied only to tax collection; it could not be used to shut down Colorado's reporting laws.

Onward to the Supreme Court, the DMA went. But the Court wasn't interested. On Monday, the Court denied the Association's petition for cert, allowing the Tenth Circuit's ruling, and Colorado's Amazon law, to stand.

Of course, the issue isn't completely settled yet. The Supreme Court could take up another challenge to such laws in the future. But for now, it's likely that more states will begin adopting similar laws, as they move to collect taxes lost to internet sales.

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